Explain one situation in which contribution-cost pricing would seem to be more appropriate than mark-up pricing.
Question
Solution
Contribution-cost pricing could be more appropriate than mark-up pricing in a situation where a company is trying to penetrate a highly competitive market.
Step 1: Identify the Situation Let's say a new company is entering a market that is already saturated with similar products. The competition is high and the company needs to gain a foothold.
Step 2: Understand the Pricing Strategies Mark-up pricing involves adding a set percentage to the cost of the product to determine its selling price. This is a simple method, but it doesn't take into account the competitive landscape or the value perception of the customers.
On the other hand, contribution-cost pricing takes into account the variable costs associated with the product (like raw materials and direct
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